At yesterday's primary auction, interest rates declined only for bills that had caps. For other paper, rates were unchanged. However, the pace of borrowings for budget financing remains high. Yesterday, borrowings amounted to UAH11.5bn and, year-to-date, UAH87bn.
The most sizable decline was for four-month bills where the cap was set at UAH0.5bn and was oversubscribed more than three times. The lowest rate in bids declined 50bp to 8.4%. Overall, demand came in with rates not higher than 9%, while last week the cut-off rate was 9.15%. So, no wonder the only accepted bids were with rates not higher than 8.5% with the weighted-average rate at 8.47%. These rates are 65bp and 60bp lower than two weeks ago, respectively.
For 11-month bills, demand was double the offered amount, while the cap was UAH2bn, UAH0.5bn larger than a week ago. Despite the lowest rate declining by 45bp to 10.3%, the Ministry accepted bids with rates up to 10.75%, or 10bp lower than last week. The weighted-average rate for this paper slid 13bp to 10.67%.
The placement of 16-month paper was similar. The cut-off rate was down the same 10bp to 11.05%, while the weighted-average rate slid 11bp to 11.04%. Demand for this maturity was just UAH0.5bn larger than the offering.
Rates remained unchanged for two and three-year paper. There was a lack of competition among investors as there were not any caps. Therefore, rates remained steady at 11.8% and 12.05%, respectively.
Also unchanged were the rates for the USD-denominated instrument. These bills were sold at 3.9% and only the weighted-average rate was up 1bp to the same level as the cut-off rate.
With UAH11.5bn in principal having to be repaid today, the Ministry was able to refinance this repayment. More than a third of new funds were borrowed in hard currency. In total, today's debt repayments amount to UAH15bn. Therefore, by accepting less than 60% of demand for local-currency bills, the Ministry deliberately raised enough for partial redemption refinancing and will use other sources for repayments.
Most likely, the Ministry's strategy was to lower the short-end of yield-curve taking advantage of high investor interest to increase pressure on rates. With low acceptance of bids, the pace of borrowing is still high and should allow the Ministry to refinance all debt redemptions in March, as it did in January and February.